Community Innovation Survey

There are two widely used methods to investigate firm innovative behaviour that also include outputs, i.e. innovations themselves. The first method is to use patenting data, which is readily available from local or international patenting

offices. As with everything, patenting data has strengths and weaknesses. An overview of the positive and negative arguments has been made by Smith (2005) and Kleinknecht and Reinders (2012).

Positively, patenting data has a rich history, dating back more than a century by now. Patents are usually granted for promising new technologies with commercial application, i.e. innovations. Patents also systematically document underlying technologies and include citations to other patents and scientific works which can be used in a bibliographic analysis.

The downsides of patenting data are related to what can actually be patented.

Patents rely heavily on inventions. They can be without any commercial success or current application, meaning that they should not be considered innovations as such. Patents are widely used in some sectors but not used in others at all. For example, patenting activity in software based solutions is low, because the speed of progress is too fast to rely on patenting rights. Patents can also be used as a strategy to hinder the progress of the competition. In general, patents are not a sure indicator of progress and economic significance to any firm.

The second widely used data for investigating innovations is survey data. Subject and object approaches can be distinguished (Smith, 2005). The object approach identifies formidable innovations through some external mechanism and surveys firms about their innovative behaviour. The most famous example in the relevant literature is the SPRU database (Townsend, 1981). It covers approximately 4000 major innovations in the UK between 1945 and 1983. They used a panel of ex-perts from various fields to identify innovations and surveyed information about sources of knowledge, types of innovation, links with other industries and so forth.

This type of data collection is rare and not widely available. In addition, innova-tions must be somewhat significant in society for experts to name them worthy of inclusion, leaving out many incremental innovations (Smith, 2005). Results from this approach are still relevant, albeit the original method is difficult to replicate.

The subject approach relies on firm-level activity and details information about general innovation inputs and outputs, such as R&D, knowledge base, innovation types and financing (Smith, 2005). This is the survey type used in this thesis.

The CIS is arguably the most used survey about innovative activities in the world, at least in the EU. It is a standardised survey, coordinated by Eurostat and car-ried out by all Member States plus Norway and Iceland¹. The CIS is part of the EU science and technology statistics designed to survey innovative activity in enterprises. All the questions are harmonised between Member States for

com-1Further information can be read from the Eurostat website https://ec.europa.eu/eurostat/web/

microdata/community-innovation-survey

parability, and relevant materials are published in the Oslo Manual (2005). Data from the CIS is also used as one part of the European Innovation Scoreboard.

The CIS surveys firms about relevant inputs and outputs of innovative activities.

There have been 9 waves of the CIS in Europe so far. Over these waves, the survey has been modified to clarify definitions, while some topics have been added and others removed. In addition, there is a special section in every wave designed to investigate some aspect of the innovative process. Recent examples are the role of design in innovative activities and the role of different appropriation methods.

The most relevant dimensions which are surveyed in the CIS are:

• Expenditure on activities related to innovation, e.g. acquisition of machin-ery, R&D, training & skills development, design, etc.

• Types of innovation, different output configurations, e.g. are these product or process innovations, new products or services, new to the local market or new to the world, marketing and organisational innovations

• Sources of knowledge, e.g. suppliers, clients, universities, etc.

• Collaboration partners, e.g. within the group, clients, suppliers, etc.

• Strategy in developing innovations, goals and barriers, e.g. cost reduction, market penetration, etc.

• Financial data, public support, size, firm position in a group, etc.

The CIS is not free of criticism. It is a self-reported survey, it does not survey non-innovative firms, and it is based on technological innovations.

Self-reported surveys rely on the respondent to answer truthfully without any aid from the researchers. Their cues are only what is written down on the question-naire. Therefore, there can be bias in answers in self-reported surveys (Bertrand and Mullainathan, 2001). People are influenced by the way questions are formu-lated². Even the order of answer lists might influence results. Furthermore, there is social desirability bias, whereby people have a tendency to answer in a way they believe the researchers or the wider audience would like them to, which serves a desire to fit in. Lastly, self-reported surveys may lack coherency from the same respondents. The measured outcome of some surveyed attitude can be relatively unstable in a short period.

The CIS does not survey firms which have not innovated very well. Firms that respond that they have not had any innovations or cancelled projects on innova-tions can skip most of the survey. The CIS is designed in a way that all quesinnova-tions

2A whole range of studies have been devoted to this in the behavioural economics field, see also Kahneman (2011) and Thaler and Sunstein (2009)

are in the context of innovative activities. For example, the question about coop-eration with possible partners is phrased like this: ”did your enterprise co-operate on any of your innovation activities with other enterprises or institutions?” This means that we are missing a counterfactual in the survey. Firms that cooperate with partners, while believing that they do so in a context that is not innovative, are missing from our responses. Therefore, we can investigate whether firms that believe themselves to be innovative are cooperating with partners, but we can not investigate whether firms that are cooperating with partners are innovative. One solution to this problem is to add external data from other sources which reliably covers the sample. Then we can also investigate whether some type of activities also correlate with firms who believe themselves to be innovative. The reverse condition is always true. If we observe that innovative firms never cooperate, we can argue that innovative firms are not correlated with cooperation. However, such conditions are rare to exist.

The CIS relies on a definition of innovations which is more technology based (Smith, 2005). Since the CIS is also evolving, the definitions have laxed a bit over different waves. Smith (2005) brings forth an example from the second CIS car-ried out in 1996³. The definition of innovations is following: “Technological in-novations comprise implemented technologically new products and processes and significant technological improvements in products and processes”. Furthermore, new products and improvements are also described in a manner which emphasises technological upgrade.

Since then, CIS 3 already made changes that can include less technology heavy innovations and it has continued since. In this thesis, CIS 4 (2002-2004) until CIS2012 (2010-2012) is used. Therefore, examples are brought from those. In CIS 4, the general definition of innovations is following: “A product innovation is the market introduction of a new good or service or a significantly improved good or service with respect to its capabilities, such as improved software, user friendliness, components or sub-systems” (Eurostat, 2004, p. 4). It is self-evident that the CIS has reduced its technology heavy definition over time to include a somewhat more vague definition of innovations. The Oslo Manual (2005) justi-fies that this definition tries to encompass all sorts of innovations, whether they are clearly defined projects with a single significant change or a series of small incremental changes. In the latest CIS used in this thesis, CIS2012 , the definition used is following: “A product innovation is the market introduction of a new or significantly improved good or service with respect to its capabilities, user friend-liness, components or sub-systems” (Eurostat, 2012). These are rather similar and comparable.

3Unfortunately, I am unable to find a copy of the original CIS 2. Estonian CIS waves start from CIS 3.

The CIS surveys firms fully if they have done or continue doing product and pro-cess innovations. Organisational and marketing innovations are also surveyed, but most of the questionnaire can be skipped for them. This also contributes to the counterfactual problem. The definitions of organisational and marketing innova-tions have become wider between 2002 and 2012.

Organisational innovation is defined in CIS 4 as “the implementation of new or significant changes in firm structure or management methods that are intended to improve your firm’s use of knowledge, the quality of your goods and services, or the efficiency of work flows” (Eurostat, 2004, p. 10) and in CIS2012 as “a new organisational method in your enterprise’s business practices (including knowl-edge management), workplace organisation or external relations that has not been previously used by your enterprise” (Eurostat, 2012, p. 9). The first is defined in terms used mostly by economists who study innovations and the latter in terms used in business and referring to managerial decisions. This could have con-tributed to the cognitive bias problem. Respondents read fairly similar text in meaning, but the wording has changed notably. There is no way to tell how much it has contributed to the noise in responses.

Marketing innovations have undergone similar changes. In CIS 4 they are defined:

“A marketing innovation is the implementation of new or significantly improved designs or sales methods to increase the appeal of your goods and services or to enter new markets” (Eurostat, 2004, p. 10). In CIS2012: “A marketing inno-vation is the implementation of a new marketing concept or strategy that differs significantly from your enterprise’s existing marketing methods and which has not been used before” and they must involve significant changes to the four P’s⁴ and exclude seasonal or routine changes (Eurostat, 2012, p. 10). The latter definition is a bit wider, including more types of innovation as possible answers.

Some other questions in the survey have also undergone minor changes during this period. For example, cooperation with clients in general was surveyed in the earlier waves, whereas public and private clients are separated in latter CIS waves . All similar examples are combined into one or matched to give continuous and comparable answers. If some questions are completely dropped or have under-gone too vast changes, these are not included in any analysis. Unfortunately, this also meant that many interesting questions had to be excluded.

An example from CIS2012 on how questions related to innovative activities are formulated follows. About sources of information: “During the three years 2010 to 2012, how important to your enterprise’s innovation activities were each of the following information sources? Include information sources that provided infor-mation for new innovation projects or contributed to the completion of existing projects,” and a list of potential sources and their relevance follows (Eurostat,

4Product design or packaging, placement, promotion or pricing

2012, p. 8). These details are relevant about our conclusions. Firms are sur-veyed only about sources of information related to innovative activities and about possible projects that they reported earlier — product and process innovations.

Therefore, the CIS surveys about possible management choices while delivering innovations, but not for regular business activities, if these two do not coincide.

Finally, a note on CIS measures of innovation. Firms are surveyed whether they have done any innovations in a three year period. They may choose several types of innovation, e.g. new products, services and distribution processes. However, the answers are binary and without weights. It is not possible to infer which of these innovations were more important. Furthermore, it is not possible to infer how many innovations were made in total. Many firms have several product lines and several services where they can commercialise innovations simultaneously.

There is one question regarding the importance of innovations in the CIS. Firms are asked what percentage of their turnover is due to these recent innovations.

This is known as innovation intensity in relevant literature. According to the Schumpeterian view of innovations, a higher share of innovative products leads to competitive advantages and better performance. However, relevant questions only survey product innovations and do not disentangle these. Therefore, if a firm does not produce a new product or service innovation, we cannot gauge the importance of innovations in relation to firm turnover or profitability with CIS data.